Argentina seeks elusive investments to fully exploit shale gas


A view of two towers in Vaca Muerta, the field whose discovery gave Argentina enormous shale gas and oil potential. Since 2011, governments have dreamed of taking full advantage of it, but have been unable to do so, so the country spends billions of dollars annually on gas imports. CREDIT: Energy Secretariat
  • by Daniel Gutman (Buenos Aires)
  • Inter Press Service

The main reason for this paradox – which exacerbated the instability of the economy of this South American country – is the lack of transport infrastructure.

In a public ceremony on Aug. 10, President Alberto Fernández signed the delayed contracts to build, at more than $2 billion, to be financed by the state, a modern gas pipeline to bridge that gap.

The goal is to bring much of the natural gas produced in Vaca Muerta to the capital Buenos Aires, home to nearly a third of the 47 million inhabitants of this southern cone country.

Vaca Muerta is a geological formation with an abundance of shale gas and oil, located in the southern region of Patagonia, more than 1,000 kilometers from Buenos Aires.

The name Vaca Muerta has been on the lips of recent Argentine presidents as a symbol of the brighter future that awaits a country whose economy suffers from a chronic lack of foreign exchange and a weakened local currency, resulting in a poverty rate of about 40 percent. of the population. the population.

This has been the case since 2011, when the US Energy Information Administration (EIA) reported that Argentina’s Vaca Muerta makes it the country with the second largest shale gas reserves, after China, and the fourth largest oil reserves.

Vaca Muerta has reserves of 308 trillion cubic feet of gas and 16.2 billion barrels of oil, according to EIA data, confirmed by Argentina’s state oil company YPF.

“With Vaca Muerta, Argentina has the potential to not only become energy self-sufficient, but also to export. We are missing a huge opportunity,” said Salvador Gil, director of the Energy Engineering program at the Public National University of San Martín. , on the outskirts of Buenos Aires.

Gil told IPS Argentina could play an important role given the crisis of rising energy prices caused by the war in Ukraine, which threatens to drag on.

But to do so, it must solve not only its transportation problems, but also the imbalances in the economy, which have hindered the influx of major investments into the country for years.

“What the world needs today is energy security and Argentina has gas, which has been identified as the main fuel needed for the transition to clean energy, in the context of the fight against climate change,” said the expert.

More foreign dependency

But since 2011, when the EIA released its first data on Vaca Muerta’s potential, leading politicians and pundits to dream that Argentina would become a sort of Saudi Arabia of South America within a few years, the country has in fact become more and more depending on the energetic point of view.

A 2011-2021 study released this year by a private think tank states that “the decade was marked by an increase in Argentina’s external dependence on hydrocarbons: gas imports increased by 33 percent over the decade. .6 percent, while diesel imports grew 46 percent and gasoline grew 996 percent.”

The paper, published by the General Mosconi Energy Institute, points out that Argentina, which was self-sufficient in gas and oil until the late 20th century, began to experience a significant production decline in 2004.

Two years later, pipelines started importing gas from Bolivia, and in 2008 began importing liquefied natural gas (LNG), mainly by ship from the United States and Qatar.

“Since then, the share of imported gas in the country’s total consumption has grown, representing only six percent in 2009, rising to 22 percent in 2014. In 2021, it represented 17 percent of the total,” the report states.

The production of Vaca Muerta is still well below its real potential and growing. In June, according to official data, it contributed 56 percent of the 139 million cubic meters of natural gas produced in Argentina per day.

Gas is the main fuel in the country’s energy mix, accounting for about 55 percent of the total.

In terms of oil, Vaca Muerta contributed 239,000 of the 583,000 barrels per day of national production in June.

Today, gas from Patagonia in the south is transported to Buenos Aires and other major cities through three gas pipelines built in the 1980s that failed to meet demand.

For this reason, the gas pipeline whose contract was signed this month has been described by both political leadership and academia as the most urgently needed piece of infrastructure in Argentina right now.

The cost was set at $1.49 billion at the end of 2021, but is likely to exceed $2 billion, due to devaluation and inflation crippling Argentina’s economy.

According to the government, the pipeline will be operational next June, at the beginning of next winter in the southern hemisphere.

Looking for investments

“Of course the pipeline is important, but it won’t solve all of Argentina’s energy problems,” said Daniel Bouille, a researcher with a PhD in energy economics.

The expert reminded IPS that an important factor is that shale oil and gas are extracted using the hydraulic fracturing technique or fracking, which is “more expensive than conventional techniques”.

“In order to develop the great potential of Vaca Muerta, investments between 60 and 70 billion dollars are needed,” he explains.

Bouille said that today the conditions do not exist for these investments to take place, in a country whose economy has not grown since 2010 and where there are exchange controls and restrictions on the export of foreign exchange, none of which inspire confidence in the international capital.

To deal with this situation, Economy Secretary Sergio Massa announced that on September 9 he will visit oil giants such as Chevron, Exxon, Shell and Total at their headquarters in the US city of Houston, Texas to interest them in the possibility. to invest. in Vaca Muerta.

Argentina doesn’t seem to think of alternatives. “For 20 years, the country’s conventional oil and gas production has been steadily declining as all its basins have been exhausted,” said Nicolás Gadano, an economist specializing in energy at the private Di Tella University.

“It is precisely the shale hydrocarbons from Vaca Muerta that have compensated for the situation over the past five years to slow the decline in overall production,” he added in an interview with IPS.

Gadano believes that further developing the potential of Vaca Muerta will be positive for Argentina even from an environmental point of view.

“This year Argentina used a lot of oil for electricity production because of the lack of gas. But when the pipeline starts working, liquid fuels will be replaced by gas, which is a cleaner fuel,” he said.

There are also less visible but critical voices about the focus on Vaca Muerta as Argentina’s energy path.

“Fracking, in addition to its negative environmental and social impacts, is very expensive,” said Martín Alvarez, a researcher at Observatorio Petrolero Sur, a non-governmental organization that focuses on the environmental and social aspects of energy issues.

He noted that “Vaca Muerta hydrocarbons had no export opportunities until the current global energy crisis. It wasn’t until this year’s international price hike that a market emerged for them.”

“Argentina has forgotten renewable energy and is committed to fossil fuels, which is a step backwards and against international climate agreements. The pursuit of the development of Vaca Muerta is this country’s only energy policy in the past 10 years,” he lamented. .

© Inter Press Service (2022) — All rights reservedOriginal source: Inter Press Service

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